The holiday season is upon us, but the stock market has made it hard for many growth investors to feel joy this season. The major indexes have been deceiving; several stocks in the Nasdaq Composite are hitting 52-week lows while a select group of mega-caps has propped up the index with their high weighting.
But don't fear; this is a time to be merry. The sell-off has provided the opportunity to buy shares of many high-quality growth stocks at heavily discounted prices. Here are three stocks that you will be glad you bought at these discounted prices.
Image source: Getty Images.
1. Meta Platforms
Technology holding company Meta Platforms (META 1.54%) has shifted from its former name, Facebook, as a symbol of the company's pivot from social media platforms to its focus on building the metaverse, where the physical and digital worlds touch.
The metaverse has begun to gain attention from investors for its potentially large growth prospects over the coming decade, but Meta Platforms just hasn't participated in the hype. The stock has been flat over the past six months and has become cheaper than the S&P 500 as a whole.
FB PE Ratio data by YCharts
Its price-to-earnings ratio is less than 24, less than the S&P 500, despite estimates calling for earnings-per-share (EPS) growth of 20% per year over the next three to five years, nearly double the historical growth rate of the S&P 500 (a median of 11% per year).
But is this deserved? Meta owns some of the most dominant social media platforms globally, including Facebook, Instagram, WhatsApp, and virtual reality hardware company Oculus. In its most recent quarter, the third quarter of 2021, more than 2.9 billion people used Meta's various platforms.
This generates billions of advertising revenue and is very profitable. Revenue grew 35% year over year in Q3 to $29 billion, and almost $10 billion of that was free cash flow, adding to Meta's $58 billion cash pile on its balance sheet. It's investing billions into developing its metaverse business while buying back more than $50 billion of its stock to turbocharge EPS at the same time.
Meta's a high-quality business with financials too strong for the stock to trade at a discount to the S&P 500. But here we are, so Meta is among the best holiday deals on the market.
2. CrowdStrike Holdings
Cybersecurity company CrowdStrike Holdings (CRWD 0.14%) was one of the big winners of 2020 when the stock multiplied from about $40 a share during the March 2020 lows to as high as almost $300 a share earlier this year. Corporations are showing up in the news because of various hacks and breaches, and are now enlisting companies like CrowdStrike to help them defend themselves.
In the chart below, we can see how CrowdStrike has rapidly grown its revenue, but the stock price outpaced the business, sending the stock's price-to-sales ratio as high as 64. It gets harder to maintain growth the larger a company becomes, which is why we see the actual growth rate declining over time. To be sure, 63% growth is still very impressive.
CRWD Revenue (Quarterly YoY Growth) data by YCharts
Investors could keep CrowdStrike on their radar as the valuation continues to come down. According to research firm Gartner, the global market for endpoint cybersecurity could be worth $21 billion by 2025, and Crowdstrike is a leader in that field. Companies looking for cybersecurity solutions are likely to consider Crowdstrike given its good reputation.
The company is also profitable; its free cash flow grew at the same rate as its revenue (63%) in its fiscal 2022 third quarter, and its balance sheet has $1.9 billion in cash, so it is unlikely that CrowdStrike will need to issue new shares to raise money. Investors can dollar-cost average into CrowdStrike due to its still high P/S ratio, but its strong fundamentals arguably justify at least investor attention to this current dip.
3. Roku
The stock price of streaming platform Roku (ROKU 1.91%) has dramatically fallen from highs, down more than 50% since hitting $490 per share. The company's software acts as an operating system for smart TVs; Roku also sells dongles that run streaming services on non-smart TVs.
Roku's ownership of this platform has given it much power over content creators and streaming service companies. Some companies have begun to push back, including Alphabet recently, over the right to add YouTube to its platform. These competitive worries have spooked investors, pushing the stock to a P/S ratio of 12, near the lows of the pandemic. Roku and Alphabet recently reached an agreement to extend the availability of YouTube on Roku's platform, indicating that Roku's platform is too important for YouTube to walk away from.
ROKU PS Ratio data by YCharts
Roku's user base grew 23% year over year in the third quarter, to 56.4 million, and only gives Roku more leverage the more users it gets. International markets could play a big role in Roku's growth over the coming years. Roku has established itself as the top streaming platform in Mexico, so it could see similar success when it launches in Peru and Chile later this year. It also recently launched in Germany.
There are still 74 million households that pay for cable in the United States alone, so there is a lot of potential in these less developed markets, giving Roku a long-term growth runway that is attractive at the current depressed share price.
